Switch financial providers and save

01
.Switch and save

Rising inflation, interest rates and high property prices mean that, for most of us, minimising the cost of 'staple' financial services like bank accounts and insurance is important. And when some of these services are virtually identical — apart from their cost — why wouldn’t you go for the cheapest option?

Well, one answer is because of the difficulty of changing. Flicking your bank account is harder than it should be — Australia lags behind other countries in this respect.

That’s why CHOICE has pushed for the introduction of more efficient and low-cost switching processes, which are expected to be introduced later in 2008.

But even taking the 'hassle factor' into account, CHOICE members told us it's well worth switching banks and credit cards for better fees, rates and service. And switching your insurance policy is easy, and could save you hundreds of dollars each year.

This report looks at ways to save (or get a better return) on your:

banking

credit cards

insurance

savings

Government reforms welcomed

The Federal Government has just announced plans to make account switching easier for consumers — a move welcomed by CHOICE, as we have been campaigning on this issue for the past three years.

The government has announced that from November 2008, a listing and switching service will require your present bank, if requested, to provide a list of all your account's debits and credits. You can take this list to the institution you want to switch to and it'll be required to help you to reestablish those automatic payments, taking a lot of the hassle out of switching.

Please note: this information was current as of February 2008 but is still a useful guide to today's market.

02.Everyday accounts

There are three compelling reasons to consider changing your everyday transaction account.

Australian households pay billions of dollars in bank fees annually.

Most everyday transaction accounts pay little or no interest.

Customers are often dissatisfied with the service they receive.

Step 1: Find a better account This is not easy, with hundreds of options on the market. However, past CHOICE studies found the difference between the best and worst accounts for representative case study scenarios was hundreds of dollars each year. Worth a look, below, has some ideas.

Step 2: Open the new account You’ll need to provide 100 points of identification, such as your passport, driver’s licence, council rates notice, and so on.

Step 3: Redirect automatic payments This can include your salary and direct debits. You still need to reestablish direct debits yourself – a pretty archaic system which is being updated soon. You should also write to the merchant.

Step 4: Close the old account Watch out for penalty fees. Up to $50 may be charged if payments from your old account are dishonoured because it has insufficient funds. Make sure you’ve enough money in the old account until all payments are redirected.

Worth a look

There are a number of other account types that are worth considering.

No-fee interest-paying transaction accounts

BankWest's Hero account pays 5% pa on balances up to $5000 (but no interest on balances above that – the idea is you’d divert them to a high-interest savings account). There’s no ongoing minimum balance or limit on deposits or withdrawals and similar to other banks, you’re charged $1.95 to use other banks’ ATMs (except BankWest affiliated banks). However, there are a few catches with this account. You must deposit at least $2000 each month, and while all financial institutions charge penalty fees, BankWest’s are among the highest. Its dishonour fee ($50) is higher than most banks, and BankWest charges $45 each time you overdraw your account, up to a maximum of $135 per day.

HSBC’s Online Savings account pays 5.35% on balances over $5000 (but just 0.5% on the first $4999). There’s no account fee. A $2 fee is charged if you use a non-HSBC ATM more than five times a month.

Members Equity's InterestME is a combined transaction and savings account. There’s no account fee and most transactions are free. ATM withdrawals cost $1. Interest at 6.75% is paid on balances above $3000, with 0.25% paid for smaller amounts.

Flat-fee accounts

Many financial institutions offer accounts with unlimited transactions, excluding withdrawals from other institutions' ATMs, for a monthly fee of around $5.

Mutual societies

Past CHOICE surveys found higher satisfaction levels among credit union customers, compared with banks. And more recently, in July 2007, Roy Morgan Research found:

73.0% of banks’ customers are satisfied (an average figure for all banks).

Make sure the bank, building society or credit union is an Authorised Deposit-taking Institution, regulated by the Australian Prudential Regulatory Authority. There's a list of authorised institutions on the APRA website.

Mortgage offsets

If you have a home loan, consider directing your salary and savings into a linked offset account. Its balance reduces your home loan for interest calculations.

For example, if your home loan is $300,000 and you’ve $10,000 in the offset account, mortgage interest is calculated on $290,000.

This effectively 'earns' interest at your mortgage rate (typically 8.5% pa or higher) and you don’t pay income tax on this interest.

However, watch for offset fees and loan interest rates. Weigh up these costs and benefits.

04.Insurance

Compare policies at each renewal — check CHOICE's recommended policies for car, health and home/contents insurance to save money and ensure good cover.

It’s fairly simple — you’ll need to check prices with a few companies to find the best value and it’s also worth reading a few policies (they’re accessible on the companies' websites) to ensure you get suitable cover. Then, once the new insurance is set up, make sure any direct debit payment arrangements with your old insurance company have been cancelled.

Differences between premium costs that we’ve found over the past year for different types of insurance give an indication of the possible savings:

Car insurance

Our most recent comparison finds the differences between the lowest and highest quotes between insurers were, on average:

$2230 for young drivers

$315 for adults and

$340 for older drivers

For more information and policy ratings, see our Car insurance report.

Home insurance

We found the annual premium differences between the cheapest and dearest insurers was $280 for defined events home cover and $190 for contents.

Some companies offer better protection against underinsurance, such as the total cost of rebuilding your home, or 25% to 30% more than you were covered for, if you’re underinsured.

Health insurance

Our recommended policies could save you, on average, $540 to $710 each year, depending on the cover and excess or co-payment chosen. See our Health insurance report.

Travel insurance

Travel agents traditionally sold most policies, but this enabled them to get away with high prices. Some agents keep more than 50% of what you pay as their commission.

You can pay less online, where some of the same policies are available for lower prices. Just make sure the cover is sufficient. For advice on what to look for when choosing travel insurance, see our Travel insurance buying guide.

Bundling for a discount

We got conflicting reports from members about whether combining policies with one insurer saves money. Some found that bundling was cheaper. But others found that switching between the best-value insurer at each renewal was better value, even after taking 'loyalty' discounts into account.

While some insurers give discounts on their standalone policy prices to customers who have several policies with them, you might still be better off shopping around for each policy separately. Another idea is to ask your present insurer to match the best price you’re quoted.

05.Credit cards

You can get a competitive interest rate, interest-free days and no annual fee, all on the same card.

Changing your credit card is much like switching bank accounts:

To apply for a new card, you’ll need to provide identification. The application form also requires plenty of details about your income, job, other debts — and the financial institution will do a credit check (be aware, too many credit applications can affect your rating).

When the new card comes through, make sure you notify all the organisations that take direct debits from your old card — check your old statements for regular payments.

Finally, cancel your old card.

If you always pay on time

More than 10 cards have no annual fee and offer a decent number of interest-free days — at least 14 after the statement is produced, or up to 55 interest-free days on some purchases. This only applies if you pay your bill on time, otherwise interest is backdated.

At January 2008, the lowest interest rates:

Police Credit Union SA: 10.49%

Austral Credit Union: 10.60%

NSW Teachers Credit Union: 11.50%

Virgin Money: 12.99%

If you never pay on time or in full

Carrying a card debt from month to month is one of the most expensive ways to borrow money, and interest rates have been creeping up. Try to clear this debt as quickly as possible:

At the very least, make the minimum monthly payment to avoid late payment fees.

Avoid using the card for new transactions — interest may apply on them from day one. Use a debit card instead, where you can only spend what’s in your account.

Consider switching to a card that charges no interest on balance transfers for the first six months. It means you’ll stop paying interest on the old debt you transfer into it, allowing you to pay it off faster. There are traps though — if you don’t clear the debt in the intro period it could be a bad deal, new transactions may attract interest from day one and you still need to pay the monthly minimum to avoid penalties.

Another option is to consolidate your debt into a single loan, and pay it off fast.

If you occasionally pay late or not in full

As well as choosing a card with a low interest rate, low annual fee and a good number of interest-free days, bear in mind that the way the company calculates interest can have a big impact too.

When we checked credit card policies in mid 2007, we found that the fairest card providers are Bank of Queensland, Bendigo Bank and particularly NSW Teachers Credit Union, which has no annual fee, up to 55 interest-free days on purchases, and an 11.5% interest rate

International transactions

The Wizard Clear Advantage MasterCard has no fee for overseas or foreign currency purchases. Most companies charge around 2%.

06.Case studies

Combine insurance for discounts

Christine from SA had her car, home and caravan policies with different insurers, but checked out the benefits of consolidating with one company.

"Overall, we were spending almost $1300 each year for the three policies," Christine says. "Apia gives a 5% discount on all policies if you have more than one policy with them."

Although the caravan insurance was dearer with Apia, overall Christine saved by switching.

"Even though we only saved $146 a year, the money is better in our pocket than someone else’s," she says. However, she notes that the Apia car insurance doesn’t give free windscreen cover, unlike her old RAA policy. The message here: check policy differences when making your decision.

Note: Apia — previously known as the Australian Pensioners Insurance Agency — is only available to people over 50.

Bad advice the final straw

Phillip and Kathryn from Sydney switched from the Commonwealth Bank to Bendigo Bank after receiving poor service and advice.

They had paid off two loans with Commonwealth for their residential and investment properties. The bank retained the deeds to facilitate any further loans. Phillip and Kathryn later approached the bank for a $30,000 loan for house repairs and improvements.

"The branch lending manager suggested that because it was 'such a small loan' we should put it on our credit cards at the prevailing rate," says Phillip. "She complained that setting up this small loan would cause her a lot of work."

Phillip and Kathryn were incensed. "The lending manager said the bank just wanted to protect us so that we wouldn’t get in debt over our heads, but we had $2.5 million of unencumbered assets with the bank and were virtually debt-free," Phillip says.

After advice from a friend, they talked to Bendigo Bank. "We met the manager on day one, were introduced to all the staff, and their banking procedures were explained to us — including the best ways to minimise fees and use debit cards. We got our loan and overdraft facility and there’ve been no glitches. I can’t recommend Bendigo enough."

Worth the hassle

For Alice and Nick from Sydney, shutting down their old account with ANZ was harder than opening the new one with HSBC.

"It took three weeks to close the account," Alice says. "ANZ required a face-to-face meeting, and later made three phone calls to try to get us back."

Still, Alice says the hassle of changing direct debit arrangements and remembering new PINs and passwords was worth it. "I’d been with ANZ since uni because the account was fee-free for students. But when a $6 monthly fee was introduced to my account, I realised switching to HSBC’s account with no monthly fee would save me over $70 per year. The disadvantage was there weren’t as many HSBC ATMs around, but you get a certain number of free withdrawals from other banks' ATMs each month."

After about a year, Alice and Nick decided to switch again, because of HSBC’s penalty fees and a bad service experience. "We had obtained a bank cheque to buy a car," Alice says. "It turned out that the vendor’s name was misspelt on the cheque. We went to the bank to replace it — and were charged $8 to cancel the old cheque and $8 again for the new one."

This experience encouraged the couple to leave. They chose Fire Brigades Employees' Credit Union, which they’d heard good things about from friends. "You can do most transactions online and there are no account keeping fees," says Alice.

Her advice is to switch if you’re not happy with your current arrangements. "There are lots of bank accounts with no monthly fees and credit cards with no annual fees. It’s worth changing even though it can be a hassle."